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IRS Changes Position, Will Not Accept Tax Returns Which Are Silent On Healthcare Coverage

U.S. Department of the Treasury Internal Revenue Service (IRS) 1040 Individual Income Tax forms for the 2016 tax year are arranged for a photograph in Tiskilwa, Illinois, U.S., on Tuesday, March 28, 2017. Photographer: Daniel Acker/Bloomberg

In a reversal, the Internal Revenue Service (IRS) has indicated that it will not accept electronically filed tax returns where the taxpayer does not address the health coverage requirements of the Affordable Care Act (ACA). This is in contrast to the 2017 filing season when the IRS took the position that it would accept and process tax returns where a taxpayer is silent on coverage. The tax agency said, at that time, that the treatment was consistent with their previous policy.

However, for the 2018 tax season, that will not be the case. According to the IRS, electronically filed tax returns will not be accepted “until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment.” Additionally, paper tax returns “may be suspended pending the receipt of additional information and any refunds may be delayed.”

The IRS said, about the change in position, that “[t]his process reflects the requirements of the ACA and the IRS’s obligation to administer the health care law.”

The obligation to follow the law was also noted in 2017 but not as forcefully, with the IRS accepting those returns which were silent on coverage and following up afterward, if appropriate. Now, the IRS has clarified that “[t]he 2018 filing season will be the first time the IRS will not accept tax returns that omit this information.”

The IRS further said, about the change, “After a review of our process and discussions with the National Taxpayer Advocate, the IRS has determined identifying omissions and requiring taxpayers to provide health coverage information at the point of filing makes it easier for the taxpayer to successfully file a tax return and minimizes related refund delays.” Their point? That accepting the returns and then billing later is problematic.

In fact, in September of this year, the IRS started sending letters to about 130,000 taxpayers who didn’t address the health care requirement on 2014 and/or 2015 tax returns.

According to the NTA, Nina E. Olson, “In my opinion, rejecting silent returns at the time of filing is the least burdensome approach because the taxpayer would correct the omission immediately. If the IRS accepts a silent return and later corresponds about it with the taxpayer, the taxpayer may be required to spend time and money months later to try to resolve the problem.”

Earlier this year, President Trump signed an executive order giving the Department of Health and Human Services and “other executive departments and agencies” the authority and discretion to roll back certain aspects of the ACA. This year, Republicans in Congress have so far been unsuccessful in their attempts to repeal and replace – or even just repeal – ACA. That means that ACA remains good law.

As part of ACA, you’re required to demonstrate that you have “essential minimum coverage.” You’re considered covered if you have insurance through the government, including Medicare, Medicaid, CHIP, retiree coverage, TRICARE, or VA health coverage; private insurance that you purchased on your own including COBRA coverage and coverage obtained through the Health Insurance Marketplace; or provided by your employer (even if you didn’t pay anything for the coverage).

Taxpayers that don’t have coverage must claim a waiver or exemption (typically based on hardship) or be subject to a penalty called the shared individual responsibility payment. For the 2017 tax year, that penalty is equal to 2.5% of your adjusted gross income (AGI), or $695 per adult and $347.50 per child, up to a maximum of $2,085, whichever is higher. That amount will be figured and reported on your 2017 tax return, payable in 2018.

The quick and easy way for most taxpayers to indicate coverage is to tick the box on line 61 on page 2 of their individual income tax return:

Line 61IRS tax form

If you failed to tick the box in past years, the IRS would still accept and process tax returns. However, this year, that won’t be the case.

What if you don’t pay? You might lose your refund. But otherwise? There’s not a whole lot that could happen to you. As I’ve noted before, Congress didn’t give IRS any real “teeth” for enforcement: no jail time, no liens, no levies. That doesn’t mean they won’t come after you with a big, threatening letter and a virtual shaking of the government’s fist at you. And it doesn’t mean they won’t hold your refund.

So to recap, ACA is still law and the IRS says it plans to the enforce the law – as much as it can, anyhow. What comes next? We’ll just have to wait and see.

Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid…MORE